Sourcing agents
Nike. Apple. Joe Fresh.
What do you associate with these companies? A conscious consumer might think of sweatshops with child labor; overworked & underpaid employees, some of whom resorted to suicide; or a factory in such horrid condition that it eventually collapsed.
What’s more important to your company? Short-term profits, or long-term growth and reputability? Do you see the impact that your choice of suppliers can have?
It should be clear by now how crucial it is in today’s global business environment for companies to establish and maintain an ethical supply chain. Not only is it necessary to comply with local and international laws & regulations, but consumers are increasingly expecting companies to operate ethically and to consider the interests of society at large, not just of shareholders.
How can a company try to ensure an ethical supply chain? First and foremost, there must be commitment from a company’s leadership. If they don’t have a clear vision or stance on the issue, how can they expect the purchasing and procurement people to seek out ethical suppliers?
Once a vision is established, companies should pledge not to do business with vendors who are complicit in human rights violations, have unsafe working conditions, use forced labor or child labor, damage the environment, or engage in extortion or bribery.
Remember that when your company is seeking out a supplier overseas, you are the customer. You have purchasing power. If a supplier is unable or unwilling to conduct business in a manner that aligns with your corporate values, take your business elsewhere. A good example of this is when cosmetics maker LUSH stopped purchasing sandalwood oil from India after learning of illegal trade and instead found a new sustainable supplier in the island of Vanuatu; they pride themselves in ethical buying and this example shows that they can walk the talk.
From the very start of a relationship with a supplier, it’s important to establish ethical guidelines; you can even state this in RFQs when soliciting quotes, and eventually integrate these standards into contracts.
Consider generating a joint code of conduct with suppliers and spell out exactly what’s expected. This way the supplier has some say in it. Also keep in mind international standards. As laws and expectations change, periodically review the contents of the code and adjust as needed.
Another idea is to set up a web-based portal to quickly communicate ethics & compliance information to vendors, and for those vendors to confirm receipt and acceptance of this info. This portal can also be useful for keeping vendors up-to-date on relevant news. It’s important to maintain an open line of communication.
A key part of maintaining an ethical supply chain is auditing suppliers. First, allow suppliers to fill out a self-assessment on ethical business practices and see how they grade themselves. Then, set up random on-site audits of suppliers; this can be performed by your own company or you can hire a third-party to do so. Look for obvious things such as condition of the facility, and try to determine any employee concerns that exist.
When conducting these audits, be mindful of local culture and norms. Interview a random selection of workers, and assure them of confidentiality and safety. Make sure the auditor is able to communicate with workers in their native language, or that the auditor has a translator.
There must also be a remediation process if standards are not being met. This would involve collaboratively making a corrective action plan with clear objectives and deadlines. Companies should monitor progress towards correction and provide such suppliers with training and resources to achieve mutually beneficial goals. Remember that you don’t want to demean suppliers, so the audit needs to be conducted in a respectful manner.
Now, it might not be possible to get all of your suppliers on board at one time, in which case you should focus on the most important or strategic suppliers first because they could cause the biggest headache if they do something questionable. Perhaps do a risk analysis and see if there are certain trouble spots that should be addressed sooner rather than later. Another idea is to collaborate with other companies in the same industry to gain more leverage over a particular supplier.
As an incentive for good performance, propose to reduce audits of suppliers and establish a preferred supplier list. Offer them more business and provide some type of annual recognition award. The ideal situation is that the suppliers themselves take ownership of this ethical mindset and incorporate it into their business strategy. Treat these suppliers as partners, working together for the success of both companies, and for the benefit of society.